[caption class="snax-figure" align="aligncenter" width="662"][/caption]Gold loans have brought huge support in the lives of common people as the Covid-19 pandemic has been crushing their financial savings. Thus we will clarify and further look into details regarding the common mistakes made while applying for a gold loan, especially if it is your first time.
We will take a look at the common mistakes that should be avoided by a borrower looking to apply for a gold loan:
- Not checking lender’s credibility- While applying for a gold loan a borrower is in the process where he pledges his or her gold, in return for which he is provided with a credit amount. As a gold loan is an asset-backed loan, thus it is understandable as the lender keeps the assets under his surveillance. Before trusting a lender of a particular bank or NBFC it is important to check the credibility of the lender. This will ensure the safety of your gold, during the tenure period, until the repayment is done.
- Not considering enough options- There are various financial institutions, including banks and non-banking financial companies that offer gold loans under different propositions. Thus while checking a gold loan facility it is advised to check all the suitable options and not just settle with what is being offered. Make sure you go through every detail and terms and condition applied by the lenders. Thus compare as many lenders as possible and utilize a gold loan calculator to make the task easier. HDFC gold loan is one the best option to compare with other gold loans.
- Not having an idea about your gold- Gold loans are granted on hallmarked gold, certified by the government. Thus one should keep track of one’s gold assets and know the market rate of gold before applying for a gold loan. Under a gold loan scheme, gold with a purity of 22 karats and above is accepted only. Anything below that is not considered as collateral. Further, the loan amount depends on the purity of the gold and also the quantity. This is so because the Loan value ratio (LTV) is 75%, which means that 75% of the collateral value will be provided as a loan.
- LTV applied on a gold loan- While applying the gold loan for the first time, one should know that the entire value of the collateral is not granted while providing credit. This is so because of the LTV ratio set by The Reserve Bank of India. The loan to value ratio was set to 75%, which has now been increased to 90% by RBI due to the pandemic circumstances. For example, if you pledge collateral worth 1 lakh then under a 90% LTV ratio you should be getting a credit worth INR 90,000.
- Not understanding repayment methods- Gold loans are easy to avail of and are one of the best options when it comes to securing credits. But it can turn into a disaster if the repayment option is not known very well. There are high chances of losing one’s gold assets if repayment is not done properly. Further, there are four different repayment structures which include regular monthly EMI installation, partial repayment, only interest EMI, and bullet repayment options. Monthly EMI installation is the most common amongst all as it includes a monthly installation for a period of selected tenure. Partial repayment options are for the business owners, who can avail a quick profit and thereby pay the credit in a ransom. This helps them to pay fewer interest rates and some banks also charge pre-closure fees for this purpose. The other option which is only interesting EMI allows the borrower to pay the interest charged on the credit only, on a monthly instalment basis The principal amount is to be charged while closing of the account, at the end of the tenure. Under the facility of bullet repayment, one can choose to not provide the monthly EMI installation but can provide the entire credit, including the interest rate during maturity.
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